Selling at a Lost

[Brian Morissey]

Hi,

I am considering selling my rental property which I purchased for $380k 10 years ago and currently has a market value of $310k.  I am married with combined yearly income of  $150k+ .  I have 2 questions:

1) Are 1031 exchanges recommended only if investment/rental property sale generates income? In our case we are selling at a loss.

2) Should we hold on to our rental property that's under water(Sacramento, CA), or sell it at a loss and buy another one in another city where housing prices are appreciating faster(San Jose, CA)?  Which one is more favorable in terms of taxes?

Thanks in advance!

Brian